Is Online Gambling Legal If Bitcoins, Not Dollars, Are At Stake?

An image depicts the SatoshiDice website, which exclusively uses Bitcoin, not dollars, for gambling.

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Originally published on February 6, 2013 7:51 am

With no government ties, Bitcoin is used to buy everything from blogging services to Brooklyn-made cupcakes. Theoretically, millions of dollars are being kept in the digital currency, and it's increasingly being used by specialized online gambling websites. But is Bitcoin gambling legal?

Purely in the interests of journalism, I decided to get my hands on some of the currency. When I did so, Bitcoin, which has been around for a few years now, was fetching around $17 on most exchange sites. It has since risen to more than $20.

It turns out that it's really easy for someone to give you Bitcoin, but it's less easy to just buy them from a third party. I ended up asking a friend with some Bitcoin to help — I told him I'd buy him a couple beers later. So, I created a Bitcoin account, and he shot me a few.

The first gambling site I tried was SatoshiDice, an online dice game specifically designed for Bitcoin. Honestly, it's a pretty boring game. You just bet on whether a random dice roll will come up below a certain value.

After I bet 0.02 Bitcoin, SatoshiDice sent an email saying I won. So, I bet the equivalent of 34 cents and I won 38 cents, meaning I came out a little bit ahead.

The federal government says online gambling is a no-no. In the last few years, the Justice Department has made it very clear: You can't just open up an offshore casino online and start taking bets using actual money from the United States.

But last year, a couple of entrepreneurs asked themselves — what if you were only betting with Bitcoin?

"What Bitcoin does is that it totally circumvents that," says Jerry Brito, who studies the currency as part of his work as a senior research fellow at the Mercatus Center at George Mason University. "There is no Bitcoin company, there's no Bitcoin building that regulators can get their hands on. It's basically cash."

This month, Brito has been following news of SatoshiDice's financial reports. The dice-game company says it made the equivalent of over half a million dollars in profits in just six months of operation in 2012, accepting bets in Bitcoin. But that betting could turn into a legal black hole.

After all, no one knows if Bitcoin is money, a financial instrument or something else.

"We don't have a bank account at Seals with Clubs," says Bryan Micon, the spokesperson for SealsWithClubs.eu, a Bitcoin-based poker site. "There's no bank account. There's no bank of any sort that we do. We only do this one weird brand-new Internet protocol transaction that some of the nerds out there are calling money."

Micon says it might be tough for the Feds to regulate what is just a piece of computer code and not real money.

I started to wonder if I broke the law by gambling online using Bitcoin. So I called the Justice Department. It declined to comment for this story.

But here's the thing with gambling with Bitcoin: My winnings are still in Bitcoin. It's up to me to convert those back into dollars. And that extra step is deliberate, says Brito of George Mason University.

"The fact that they are doing that seems to suggest that they themselves are not 100 percent sure that this will be seen as perfectly legal by regulators," he says, "wherever they're based."

For now, I still have 0.8 Bitcoin in my account, worth about $13 — assuming that it's not raided by the feds.

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DAVID GREENE, HOST:

All right, over the last few years, a digital currency has been gaining popularity around the world. It's called Bitcoin. People use it to buy everything from blogging services, to cupcakes. Hundreds of businesses accept Bitcoin and now, perhaps not surprisingly, websites are popping up that allow people to gamble with Bitcoin. Reporter Cyrus Farivar looked into some of the legal questions this raises.

CYRUS FARIVAR, BYLINE: So purely in the interests of journalism, I decided to get my hands on some Bitcoin. Turns out it's really easy for someone to give you Bitcoin, but it's less easy to just buy them from a third-party. I ended up asking a friend with some Bitcoin to send me some. I told him I'd buy him a couple beers later on. So, I created a Bitcoin account and he shot me a few.

The first site I tried was SatoshiDice. That's an online dice game specifically designed for Bitcoin. Honestly, it's a pretty boring game. You just bet on whether a random dice roll will come up below a certain value.

So I just got an email back. Looks like I won SatoshiDice. So I bet 0.02 Bitcoin and I got an email that says: you just received 0.02244397 Bitcoin, worth 38 cents. So I bet 34 cents and I got 38 cents, so I came out a little bit ahead. So that's good.

The federal government says online gambling a no-no. In the last few years the U.S. Justice Department has made it very clear you can't just open up an offshore casino online and start taking bets using actual money from the United States. But last year, a couple entrepreneurs asked themselves - what if you were only betting with Bitcoin?

JERRY BRITO: What Bitcoin does is that it totally circumvents that. There's no Bitcoin company. There's no Bitcoin building that regulators can get their hands on. It's basically cash.

FARIVAR: That's Jerry Brito. He's a senior research fellow at the Mercatus Center at George Mason University. And among other things, he studies Bitcoin. Brito's been following reports this month of financial earnings from SatoshiDice, that boring dice game. The company now says it's made the equivalent of over half a million dollars in profits in just six months of operation in 2012 - accepting bets entirely in Bitcoin. But that betting could turn into a legal black hole. After all, no one knows if Bitcoin is money, a financial instrument, or something else.

Bryan Micon is the spokesperson for SealsWithClubs.eu, a Bitcoin-based poker site.

BRYAN MICON: We don't have a bank account at Seals with Clubs. There's no bank account. There's no bank of any sort that we do. We only do this one weird brand-new Internet protocol transaction that some of the nerds out there are calling money.

FARIVAR: Micon went on to say that it might be tough for the Feds to regulate what is just a piece of computer code, and not real money. So now I'm starting to wonder if I broke the law by gambling online using Bitcoin. So I called the Justice Department. They declined to comment for this story.

But here's the thing with gambling with Bitcoin: my winnings are still in Bitcoin. It's up to me to convert those back into dollars.

And Jerry Brito of George Mason University says that's deliberate.

BRITO: The fact that they are doing that seems to suggest that they themselves are not 100 percent sure that this will be seen as, you know, just perfectly legal by regulators wherever they're based.

FARIVAR: For now, I still have 0.8 Bitcoin in my account - that is, assuming it's not raided by the Feds.